The Nature Conservancy - University of Idaho...The Nature Conservancy Consolidated Statements of Financial Position As of June 30, 2010 and 2009 The accompanying notes are an integral

The Nature ConservancyConsolidated Financial StatementsFor the years ended June 30, 2010 and 2009And report thereon

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PricewaterhouseCoopers LLPSuite 9001800 Tysons BoulevardMcLean VA 22102Telephone (703) 918 3000Facsimile (703) 918 3100pwc.com

Report of Independent Auditors

To the Board of Directors ofThe Nature Conservancy

In our opinion, the accompanying consolidated statements of financial position and the relatedconsolidated statements of activities and of cash flows present fairly, in all material respects, the financialposition of The Nature Conservancy (The Conservancy) at June 30, 2010 and 2009, and the changes in itsnet assets and its cash flows for the years then ended in conformity with accounting principles generallyaccepted in the United States of America. These financial statements are the responsibility of TheConservancy’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits. We conducted our audits of these statements in accordance with auditing standardsgenerally accepted in the United States of America. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken asa whole. The schedule of functional expenses for the year ended June 30, 2010 with summarized totalsfor the year ended June 30, 2009 is presented for purposes of additional analysis and is not a required partof the basic financial statements. This information has been subjected to the auditing procedures appliedin the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects inrelation to the basic financial statements taken as a whole.

December 6, 2010

The Nature ConservancyConsolidated Statements of Financial PositionAs of June 30, 2010 and 2009

The accompanying notes are an integral part of these consolidated financial statements.

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2010 2009

31,339$ 14,120$Restricted cash 36,603 39,200

1,861 8,578501 525

31,427 27,92380,739 59,889

Deposits on land 57,250 56,96429,298 17,239

Total current assets 269,018 224,438

10,502 10,09360,438 59,233

537,204 466,27716,625 16,618

101,111 95,970246,571 230,824891,326 837,302

1,892,328 2,157,3851,639,636 1,539,065

Total assets 5,664,759$ 5,637,205$

Assets

(Amounts in thousands)

Current assetsCash and cash equivalents

Other deposits and other current assets

Notes receivable - long-termPledges receivable - long-term, net

InvestmentsNotes receivable - currentGovernment grants receivablePledges receivable - current

Investments held for conservation projectsTrade landsProperty and equipment, net of accumulated depreciation

Conservation easements

and amortizationPlanned giving investmentsEndowment investmentsConservation lands

Continued

The Nature ConservancyConsolidated Statements of Financial PositionAs of June 30, 2010 and 2009


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2010 2009

13,121$ 9,446$20,408 20,437

Refundable advances 51,340 51,48318,190 17,285

104,156 248,00024,961 21,640

Total current liabilities 232,176 368,291

346,292 216,82846,397 287,35812,466 12,996

133,237 128,081Total liabilities 770,568 1,013,554

(28,825) (41,091)

3,441,919 3,269,676687,951 655,522

4,101,045 3,884,107504,529 458,145288,617 281,399

Total net assets 4,894,191 4,623,651Total liabilities and net assets 5,664,759$ 5,637,205$

Liabilities


Current liabilitiesAccounts payableAccrued salaries and vacation liability

Other accrued liabilities - current

Permanently restricted

Land, easements, and project fundsQuasi endowment and similar funds

Temporarily restricted

Net assetsUnrestricted

UndesignatedBoard-designated

Current maturities of long-term debt

Planned giving liability

Deferred revenue - current

Long-term debt, less current maturities

Deferred revenue - long-termAccrued liabilities - long-term

The Nature ConservancyConsolidated Statement of ActivitiesFor the year ended June 30, 2010


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Temporarily PermanentlyUnrestricted restricted restricted Total

107,720$ 59,758$ -$ 167,478$

76,731 121,675 559 198,96595 8,667 6,659 15,421

11,758 - - 11,75824,886 - - 24,886

138,135 - - 138,13583,726 - - 83,726

3,366 723 - 4,089145,806 24,133 - 169,939

- 1,950 - 1,95025,063 - - 25,063

Total support and revenues before sales ofconservation land and easements andnet assets released from restrictions 617,286 216,906 7,218 841,410

148,783 - - 148,783

170,522 (170,522) - -Total support and revenues 936,591 46,384 7,218 990,193

349,101 - - 349,101

200,476 - - 200,476Total program expenses 549,577 - - 549,577

98,683 - - 98,683

53,880 - - 53,88017,513 - - 17,513

Total support services expenses 170,076 - - 170,076Total expenses 719,653 - - 719,653

216,938 46,384 7,218 270,5403,884,107 458,145 281,399 4,623,6514,101,045$ 504,529$ 288,617$ 4,894,191$

Increase in net assets

Royalties, fees, and other

Net assets at end of year

Book value of conservation land and easements sold ordonated to governments and others

General and administrationFund-raising

General fund-raising

Net assets at beginning of year

Land and easements contributed for conservationContributions of trade landsInvestment returns

Membership development

Net assets released from restrictions

Sales of conservation land and easements togovernments and others

ExpensesProgram expenses

Conservation activities and actions

Support services expenses

Change in value of planned giving investments


Support and revenuesContributions for operationsContributions for land, land preservation fund, and other

Government grants

conservation projectsContributions to endowments and similar fundsContributions of goods and servicesMitigation and contracts

The Nature ConservancyConsolidated Statement of ActivitiesFor the year ended June 30, 2009


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Temporarily PermanentlyUnrestricted restricted restricted Total

99,687$ 60,557$ -$ 160,244$

93,482 131,848 840 226,170803 5,830 11,213 17,846

12,538 - - 12,53836,733 - - 36,733

126,915 - - 126,915115,655 - - 115,655

7,007 389 - 7,396(283,725) (36,934) - (320,659)

- (47,813) - (47,813)25,655 - - 25,655

Total support and revenues before sales ofconservation land and easements andnet assets released from restrictions 234,750 113,877 12,053 360,680

186,543 - - 186,543

195,580 (195,580) - -Total support and revenues 616,873 (81,703) 12,053 547,223

386,690 - - 386,690

257,785 - - 257,785Total program expenses 644,475 - - 644,475

103,869 - - 103,869

58,293 - - 58,29317,784 - - 17,784

Total support services expenses 179,946 - - 179,946Total expenses 824,421 - - 824,421

(207,548) (81,703) 12,053 (277,198)Reclassifications (3,665) - 3,665 -

(211,213) (81,703) 15,718 (277,198)4,095,320 539,848 265,681 4,900,8493,884,107$ 458,145$ 281,399$ 4,623,651$


Support and revenuesContributions for operationsContributions for land, land preservation fund, and other

Government grants

conservation projectsContributions to endowments and similar fundsContributions of goods and servicesMitigation and contracts

Conservation activities and actions

Support services expenses

Land and easements contributed for conservationContributions of trade landsInvestment returns

Royalties, fees, and otherChange in value of planned giving investments

Net assets released from restrictions

Sales of conservation land and easements togovernments and others

ExpensesProgram expenses

Increase (decrease) in net assets

Net assets at beginning of yearNet assets at end of year

Book value of conservation land and easements sold ordonated to governments and others

General and administrationFund-raising

General fund-raisingMembership development

Increase in net assets

The Nature ConservancyConsolidated Statements of Cash FlowsFor the years ended June 30, 2010 and 2009


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2010 2009

270,540$ (277,198)$

(6,659) (11,213)(559) (840)

(4,089) (7,396)(83,726) (115,655)

2,290 1,13051,693 71,2425,656 5,177

(149,950) 320,659(1,950) 47,813

2,597 -(3,504) (3,574)

(22,055) (5,735)(286) (49,579)

(12,059) (7,141)3,675 (4,464)

(29) (114)(143) 10,956

9,944 249,3422,791 (293)5,156 (12,948)

148,783 186,543(204,488) (628,012)

5,462 3,255- (193)

19,090$ (228,238)$

Purchases of conservation land and easements

Net cash provided by (used in) operating activities

Proceeds from sales of trade landsPurchases of of trade lands

Accrued salaries and vacation liability

Other accrued liabilitiesDeferred revenuePlanned giving liability

Additional cash provided by (used in) land activities:Proceeds from sales of conservation land and easements

Refundable advances

Accounts payable

Contributions of trade landsLand and easements contributed for conservationLoss on trade land sales/valuationsLoss on sales of conservation land and easementsDepreciation and amortizationRealized/Unrealized investment (gains) losses

Changes in:Restricted cash

Change in value of planned giving investments

Other deposits and other current assets

Pledges receivableGovernment grants receivable

Deposits on land


Increase (decrease) in net assetsAdjustments to reconcile the increase (decrease) in net assets to net

Investment in land preservation fund and other capital projects

cash provided by (used in) operating activities:Contributions restricted for:

Investment in endowment

Cash flows from operating activities

Continued

The Nature ConservancyConsolidated Statements of Cash FlowsFor the years ended June 30, 2010 and 2009


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2010 2009

1,330,537$ 1,238,058$(1,307,311) (1,038,771)

Issuance of notes receivable (2,194) (2,593)Proceeds from notes receivable 1,809 5,158Increase in planned giving investments (5,307) (2,376)

(11,417) (1,433)Net cash provided by investing activities 6,117 198,043

Decrease in restricted cash - 561

6,659 11,213559 840

(250,156) (96,183)235,776 118,963

(826) -(7,988) 35,394

17,219 5,19914,120 8,92131,339$ 14,120$

17,876$ 16,120$153 963283 244

Decrease in accrued liabilities for land acquired on behalf of,and transferred to, the U.S. Federal Government (250,000) -


Proceeds from sale of investments

Investment in land preservation fund and other capital projects

Cash flows from financing activities

Proceeds from contributions restricted for:Investment in endowment

Cash flows from investing activities

Principal payments on debtProceeds from issuance of debt

Net cash (used in) provided by financing activities

Purchases of investments

Purchases of property and equipment

Payments of financing costs

Supplemental dataInterest paidSeller debt-financed land acquisitionsIncome taxes paid

Net change in cash and cash equivalentsCash and cash equivalents, beginning of yearCash and cash equivalents, end of year

The Nature ConservancyNotes to Consolidated Financial StatementsJune 30, 2010 and 2009

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1. Organization

The Nature Conservancy (The Conservancy) is a global conservation organization. The mission ofThe Conservancy is to preserve plants, animals, and natural communities that represent the diversityof life on Earth by protecting the lands and waters they need to survive. The Conservancy conductsits activities throughout the United States, Canada, Latin America, the Caribbean, Africa, Asia, andthe Pacific.

The Conservancy’s primary sources of revenue are contributions from the public (including gifts ofland), investment income, government grants, and sales of conservation interests to governmentagencies or other conservation buyers. These resources are used to conserve portfolios of functionalconservation areas within and across ecoregions and to pursue pragmatic solutions to conservationchallenges. Through this portfolio approach, The Conservancy works with partners – includingindigenous communities, governments and businesses – to conserve a variety of ecological systemsand species.

2. Summary of significant accounting policies

Principles of consolidationThe consolidated financial statements include the accounts of all The Conservancy’s chapters andaffiliates, both domestic and international, including those which are separately incorporated,receive gifts, and perform conservation activities in the name of The Conservancy. All significantintercompany transactions have been eliminated.

Basis of financial statement presentationThe consolidated financial statements are presented on the accrual basis of accounting.

Classification of net assetsThe Conservancy’s net assets have been grouped into the following three classes:

Permanently restricted net assets – Contributions and other inflows of assets whose use byThe Conservancy is limited by donor-imposed stipulations that the principal must bemaintained permanently by The Conservancy.

Temporarily restricted net assets – Contributions and other inflows of assets whose use byThe Conservancy is limited by donor-imposed stipulations that either expire by passage oftime or can be fulfilled and removed by actions of The Conservancy, such as usage forspecific programs, including certain overhead and indirect costs, or for spending from trueendowment investment income.

Unrestricted net assets – Revenues derived from dues, unrestricted contributions,government grants and contracts, investment income (other than the temporarily restrictedportion of true endowment investment income), and other inflows of assets whose use by TheConservancy is not limited by donor-imposed restrictions. Certain unrestricted net assets havebeen designated by the Board of Directors to be maintained as land, easements, landpreservation funds (for the purchase of conservation land), other conservation project funds,and quasi endowment funds.


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Cash and cash equivalents and restricted cashHighly liquid investments purchased with a maturity of three months or fewer when purchased areconsidered to be cash equivalents. Restricted cash represents monies held in trust related torequirements of specific conservation project agreements.

Concentration of credit riskCash and cash equivalents include cash in banks held in accounts in the United States of Americaand 29 foreign countries. The cash in foreign accounts is uninsured, but is limited per country toamounts deemed immaterial by management.

The Conservancy invests its excess cash with high quality financial institutions, the largestconcentrations of which are invested in U.S. Agencies (85.7%) and corporate repurchaseagreements (14.1%) backed by U.S. Treasury securities. Pursuant to the Conservancy’s investmentpolicy, the investments described below cannot have more than 10% of their assets in securities ofany one issuer, be they short-term or long-term, other than the U.S. Government. At June 30, 2010,the single largest non-U.S. Government issuer exposure was 0.5% of the total portfolio.

InvestmentsInvestments are carried at estimated fair market value on the consolidated statements of financialposition. Fair values of investments are estimated based on quoted market prices where available.Fair values for certain private equity and real estate investments held through limited partnerships orcommingled fund shares or planned giving investments held in trust by third party trustees areestimated by the respective external investment managers if market values are not readilyascertainable. These valuations necessarily involve assumptions and estimation methods that arereviewed by The Conservancy, and actual valuations could differ from those estimates. Investmentsmay include some short term investments which consist primarily of money market funds and othershort term investments temporarily held by investment managers or held for a specific purpose. TheConservancy’s investments consist of the following:

Investments – Short-term investments of working capital.

Investments held for conservation projects – Funds for the acquisition of conservation land,easements, and for funding other conservation projects.

Planned giving investments – Planned giving investments are donations that are held in trustby The Conservancy or third party trustees, representing beneficial interests in trusts. Plannedgiving investments are recorded at current fair value or at an estimated fair value based on thelatest available information. Income earned on the invested funds is payable to the donor orthe donor’s designee for a specified period of time or until the donor’s death, after which timeThe Conservancy may use the investments for operations or a restricted use specified by thedonor. The Conservancy utilizes an IRS-approved annuity table to actuarially calculate theliability associated with the estimated lead payments where The Conservancy is the trustee.The Conservancy determines the discount rate to be used in the month the planned givingarrangements are entered into with the donor and these rates have ranged from 2.0 to 9.5%.The present value of the actuarially determined liability resulting from these gifts is recordedat the date of gift. The remaining portion of the gift is recorded as temporarily restrictedrevenue.


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Endowment investments – Funds held as long-term capital to generate income for TheConservancy’s operations.

Land and Land InterestsThe Conservancy records land and land interests at cost, if purchased, or at fair value at the date ofacquisition, if all or part of the land was received as a donation. Fair value is generally determinedby appraisal. These assets fall into three primary categories:

Trade lands – real property with minimal ecological value. These properties are sold toprovide funds for The Conservancy to carry out its conservation work.

Conservation lands – real property with significant ecological value. These properties areeither managed in an effort to protect the natural biological diversity of the property, ortransferred to other organizations who will manage the lands in a similar fashion.

Conservation easements – intangible assets comprised of listed rights and/or restrictions overthe owned property that are conveyed by a property owner to The Conservancy, almost alwaysin perpetuity, in order to protect the owned property as a significant natural area, as defined infederal regulations. These intangible assets may be sold or transferred to others so long as theassignee agrees to carry out, in perpetuity, the conservation purposes intended by the originalgrantor.

With the exception of trade lands, which are assets held for sale and are carried at the lower of costor fair market value less costs to sell, land and land interests are reported at the original book value.Upon sale or gift, the book value of the land or land interest is removed as an asset from theconsolidated statement of financial position and reported as a program expense. The relatedproceeds, if any, are reported as revenue in the consolidated statement of activities. The majority ofland sales and gifts relate to transfers of real property. Conservation easements, by their verynature, do not generate material amounts of cash inflow annually.

Property and equipmentProperty and equipment are carried at cost. The Conservancy’s minimum capitalization threshold is$50,000. Expenditures for maintenance and repairs that do not improve or extend the lives of therespective assets are expensed as incurred. When assets are retired or sold, the related cost andaccumulated depreciation are removed from the accounts, and any loss on retirement or gain or losson disposal of the individual assets is recorded as revenue or expense.

Depreciation and amortization is provided using the straight-line method for all depreciable assetsover their estimated future lives as follows:

Building and improvements 5 – 30 yearsComputer equipment and software 3 – 5 yearsFurniture, fixtures, and other 4 – 25 years

ContributionsUnconditional donor promises to give cash and other assets are reported at fair value at the date thatthere is sufficient verifiable evidence documenting that a promise was made by the donor andreceived by The Conservancy. The promises are reported as either temporarily or permanently


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restricted support if received with donor stipulations that sufficiently limit the use of the donatedassets.

When a donor restriction expires, that is, when a stipulated time restriction ends or purposerestriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assetsand are reported on the consolidated statements of activities as net assets released from restrictions.

Grants and contractsThe Conservancy receives grants and contracts from federal, state, and local agencies, as well asfrom private organizations, to be used for specific programs or land purchases. For governmentgrants and contracts, the excess of reimbursable expenditures over cash receipts is included ingovernment grants receivable and any excess of cash receipts over reimbursable expenditures isincluded in deferred revenue. For private mitigation and other contracts, any excess of cash receiptsover reimbursable expenditures is included in deferred revenue.

The Conservancy’s costs incurred under its government grants and contracts are subject to audit bygovernment agencies. Management believes that disallowance of costs, if any, would not bematerial to the consolidated financial position or consolidated changes in net assets of TheConservancy.

Use of estimatesThe preparation of financial statements in conformity with accounting principles generally acceptedin the United States requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities andreported amounts of revenues and expenses during the reporting period. Actual results could differfrom those estimates.

ReclassificationsCertain prior year amounts have been reclassified to conform to the current year presentation.Specifically, $56,964,000 in deposits on land and $51,483,000 in refundable advances have beenreclassified from deposits and other current assets and from other accrued liabilities – current,respectively, and $39,200,000 in restricted cash has been reclassified from long-term to current inthe accompanying statements of financial position.

New Accounting PronouncementsFor the year ended June 30, 2010, The Conservancy adopted Financial Accounting Standards Board(FASB) Accounting Standards codification (ASC) 105-10, FASB Codification (“the Codification”).The codification is the single source of authoritative accounting principles generally accepted in theUnited States of America (“GAAP”). Accordingly, references to GAAP have been updated.

Effective July 1, 2009, The Conservancy adopted the FASB’s guidance regarding Investments inCertain Entities That Calculate Net Asset Value per Share (or Its Equivalent) as described in thenote on fair value of financial instruments.

Effective July 1, 2009, The Conservancy adopted the FASB’s guidance regarding Disclosures aboutDerivative Instruments and Hedging Activities as described in the note on long-term debt andderivatives.


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3. Fair value of financial instruments

Effective July 1, 2008, The Conservancy adopted the Financial Accounting Standards Board’s(FASB) guidance regarding Fair Value Measurements, which addresses aspects of the expandingapplication of fair value accounting. The guidance defines fair value, establishes a consistentframework for measuring fair value and expands disclosure requirements about fair valuemeasurements. The guidance, among other things, requires The Conservancy to maximize the useof observable inputs and minimize the use of unobservable inputs when measuring fair value. Theguidance requires disclosure of the level within the fair value hierarchy in which fair valuemeasurements in their entirety fall, segregating fair value measurements using quoted prices inactive markets for identical assets or liabilities (Level 1), significant other observable inputs (Level2), and significant unobservable inputs (Level 3). A financial instrument's categorization withinthe valuation hierarchy is based upon the lowest level of input that is significant to the fair valuemeasurement.

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The following tables present the financial instruments carried at fair value as of June 30, 2010 and2009, by caption on the statement of financial position by the valuation hierarchy defined above:

(In thousands)Level 1 Level 2 Level 3 Total

Investments:25,777$ 2,139$ -$ 27,916$

18,044 - - 18,044Asset-backed securities - 13,527 - 13,527Corporate debt - 63,530 - 63,530

- 11,323 - 11,323U.S. agency bonds - 161,346 - 161,346

Convertible securities - 3,787 - 3,787Public equity:Retail and wholesale 64,952 - - 64,952Financial services 56,628 - - 56,628Technology 61,713 - - 61,713Health care 23,428 - - 23,428Energy 27,849 - - 27,849Transportation and utilities 6,982 - - 6,982Other services 25,651 - - 25,651Other industries 39,182 - - 39,182Commingled equity funds - - 330,402 330,402

Mutual funds 92,350 - - 92,350Closed end mutual funds 48,263 - - 48,263Hedge funds - - 208,823 208,823Private equity - - 142,986 142,986Split interests, trusteed 78,790 120,832 12,584 212,206Split interests, non-trusteed - - 36,074 36,074

569,609$ 376,484$ 730,869$ 1,676,962$

Pledges receivable 141,177$ 141,177$Liabilities:

Interest rate swaps payable 41,916$ 41,916$

Total investments

2010

Short-term investmentsFixed income:U.S. treasuries

Mortgage-backed securities


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(In thousands)Level 1 Level 2 Level 3 Total

Investments:500$ 40,891$ -$ 41,391$

57,961 - - 57,961- 6,197 - 6,197

Asset-backed securities - - 6,081 6,081Corporate debt - 32,388 - 32,388

- - 7,089 7,089U.S. agency bonds - 66,157 - 66,157

Convertible securities - 593 - 593Public equity:Retail and wholesale 58,178 - - 58,178Financial services 51,514 - - 51,514Technology 43,859 - - 43,859Health care 29,877 - - 29,877Energy 21,128 - - 21,128Transportation and utilities 9,826 - - 9,826Other services 54,554 - - 54,554Other industries 15,463 - - 15,463Commingled equity funds - - 239,453 239,453

Mutual funds 134,137 - 4,412 138,549Closed end mutual funds 34,985 - - 34,985Hedge funds - - 264,799 264,799Private equity - - 121,916 121,916Split interests, trusteed 81,685 115,173 9,944 206,802Split interests, non-trusteed - - 34,221 34,221

593,667$ 261,399$ 687,915$ 1,542,981$

Pledges receivable 119,122$ 119,122$Liabilities:

Interest rate swaps payable 32,564$ 32,564$

Commercial paper

Mortgage-backed securities

Total investments

2009

Short-term investmentsFixed income:U.S. treasuries

Following is a description of The Conservancy's valuation methodologies for assets and liabilitiesmeasured at fair value.

Fair value for Level 1 is based upon quoted prices in active markets that The Conservancy has theability to access for identical assets and liabilities. Market price data is generally obtained fromexchange or dealer markets. The Conservancy does not adjust the quoted price for such assets andliabilities.

Fair value for Level 2 is based on quoted prices for similar instruments in active markets, quotedprices for identical or similar instruments in markets that are not active, and on model-basedvaluation techniques, for which all significant assumptions are observable in the market or can becorroborated by observable market data for substantially the full term of the assets. Inputs areobtained from various sources including market participants, dealers, and brokers.


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Fair value for Level 3 is based on valuation techniques that use significant inputs that areunobservable as they trade infrequently or not at all.

Investments included in Level 3 primarily consist of The Conservancy's ownership in alternativeinvestments (principally limited partnership interests in hedge and private equity funds) as well aspublic equity investments held within private arrangements. The value of certain alternativeinvestments represents the ownership interest in the net asset value (NAV) of the respectivepartnership. Approximately 79% of Level 3 investments held by the partnerships consist ofmarketable securities and 21% are securities that do not have readily determinable fair values. Thefair values of the securities held by limited partnerships that do not have readily determinable fairvalues are determined by the general partner and are based on appraisals, or other estimates thatrequire varying degrees of judgment. If no public market exists for the investment securities, thefair value is determined by the general partner taking into consideration, among other things, thecost of the securities, prices of recent significant placements of securities of the same issuer, andsubsequent developments concerning the companies to which the securities relate. TheConservancy has performed significant due diligence around these investments to ensure NAV is anappropriate measure of fair value as of June 30, 2010.

Interest rate swaps are valued using both observable and unobservable inputs, such as quotationsreceived from the counterparty, dealers or brokers, whenever available and considered reliable. Ininstances where models are used, the value of the interest rate swap depends upon the contractualterms of, and specific risks inherent in, the instrument as well as the availability and reliability ofobservable inputs. Such inputs include market prices for reference securities, yield curves, creditcurves, measures of volatility, prepayment rates, assumptions for nonperformance risk, andcorrelations of such inputs. The Conservancy’s interest rate swap arrangements have inputs whichcan generally be corroborated by market data and are therefore classified within Level 2.

Split interest agreements where The Conservancy is not the trustee are valued at the present value ofthe future distributions expected to be received over the term of the agreement. There is no marketfor these agreements and they are therefore classified within Level 3.

The methods described above may produce a fair value calculation that may not be indicative of netrealizable value or reflective of future fair values. Furthermore, while The Conservancy believes itsvaluation methods are appropriate and consistent with other market participants, the use of differentmethodologies or assumptions to determine the fair value of certain financial instruments couldresult in a different estimate of fair value at the reporting date.

Effective July 1, 2009, The Conservancy adopted the FASB’s guidance regarding Investments inCertain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which amended theFASB’s guidance on Fair Value Measurements and Disclosures - Overall, to provide a practicalexpedient in estimating the fair value of certain alternative investments. Under the practicalexpedient, entities are permitted to use NAV without adjustment for investments within the scope ofthe guidance.


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Investments in certain entities that calculate net asset value at June 30, 2010 are as follows:

(In thousands) Unfunded Redemption RedemptionFair Value Commitments Frequency Notice Period

Global equity funds 138,453$ -$ Weekly, monthly, Same day, 10 or 30quarterly business days

International equity funds 191,949 - Monthly 6 business days, on15th of prior month

Hedge funds 208,823 - Monthly, quarterly, 45 - 90 days,rolling 2,3 & 5 years 3 - 4 months

Private equity funds 141,737 92,980 N/A N/A

Total 680,962$ 92,980$



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The following are rollforwards of the statement of financial position amounts for financialinstruments classified by The Conservancy within Level 3 of the fair value hierarchy defined aboveas of June 30, 2010 and 2009:

(In thousands)Fair value Net realized Net Net transfers Fair value

as of and unrealized purchases into (out of) as ofJuly 1, 2009 gains (losses) and (sales) Level 3 June 30, 2010

13,170$ -$ -$ (13,170)$ -$239,453 42,111 23,838 25,000 330,402

4,412 (13) (4,399) - -264,799 29,235 (85,211) - 208,823

Private equity 121,916 6,255 14,815 - 142,986Split interests 44,165 (2,939) 7,432 - 48,658Pledges 119,122 22,055 - - 141,177

807,037$ 96,704$ (43,525)$ 11,830$ 872,046$

(In thousands)Fair value Net realized Net Net transfers Fair value

as of and unrealized purchases into as ofJuly 1, 2008 gains (losses) and (sales) Level 3 June 30, 2009

7,639$ (6,482)$ 12,013$ -$ 13,170$303,400 (61,562) (2,385) - 239,453

- - - 4,412 4,412403,760 (96,215) (54,428) 11,682 264,799

Private equity 115,270 (18,516) 25,162 - 121,916Split interests 45,375 (1,210) - - 44,165Pledges 113,387 5,735 - - 119,122

988,831$ (178,250)$ (19,638)$ 16,094$ 807,037$

Mutual fundsHedge funds

Total investments and pledges

2010

2009

Asset and mortgage-backedsecurities

Commingled equity funds

Hedge funds

Total investments and pledges

Asset and mortgage-backedsecurities

Mutual fundsCommingled equity funds


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All net realized and unrealized gains (losses) in the tables above are reflected in the accompanyingstatement of activities and are reported in revenues as follows for the years ended June 30, 2010 and2009, with the exceptions of a $3,500,000 decrease in pledges reported in conservation activitiesand actions program expense for the year ended June 30, 2010 and a $621,000 decrease in splitinterests reflected in the accompanying statement of financial position as a decrease in the plannedgiving liability as of June 30, 2010:

Contributionsfor land, land

preservation fund, Change inand other value of

conservation Investment planned givingprojects returns investments

25,555$ 77,588$ (2,318)$

Unrealized gains (losses) included in changesin net assets relating to assets still held 25,555$ 42,600$ (2,318)$

Contributionsfor land, land

preservation fund, Change inand other value of

conservation Investment planned givingprojects returns investments

5,735$ (182,775)$ (1,210)$

Unrealized gains (losses) included in changesin net assets relating to assets still held 5,735$ (181,602)$ (1,210)$

2010

2009

net assets

(In thousands)

Total gains (losses) included in changes innet assets

(In thousands)

Total gains (losses) included in changes in

4. Notes receivable

Notes receivable relate primarily to sales of land by The Conservancy. Notes receivable arerecorded annually at their net realizable value. Maturities range from 1 to 19 years with varyinginterest rates from 0 to 10.0%. Default interest rates may be higher.


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5. Pledges receivable

As of June 30, 2010 and 2009, unconditional promises to give were as follows:

2010 2009

80,739$ 59,889$66,425 61,520

907 1,349

148,071 122,758

3,394 3,6363,500 -

141,177$ 119,122$Allowance for doubtful accounts

Amounts due in(In thousands)

Less than one year

More than five years

Discount to present valueLess fair value adjustments:

One to five years

Subtotal

Pledges receivable greater than one year in time are discounted at the prime interest rate, 3.25% atJune 30, 2010 and 2009. As a result of adopting the FASB’s Fair Value Measurements guidance,including the Fair Value Option for Financial Assets and Financial Liabilities, the discount rate usedin the present value technique to determine fair value of pledges receivable is revised at eachmeasurement date to reflect current market conditions and the creditworthiness of donors. Inaddition, management evaluates payment history and market conditions to estimate allowances fordoubtful pledges. Changes in the fair value of pledges receivable are reported in the statement ofactivities as contribution revenue except for changes in the allowance which are reported asprogram expenses at each subsequent reporting date. Pledges receivable past due by 90 days isimmaterial.

As of June 30, 2010 and 2009, The Conservancy received promises to give totaling approximately$51,604,000 and $56,887,000, respectively, that are conditioned upon The Conservancy raisingmatching gifts or acquiring certain conservation lands. Conditional promises to give are recognizedas contributions when the donor-imposed conditions are substantially met.


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6. Investments

Investments consisted of the following at June 30, 2010 and 2009:

(In thousands)Investments

held for PlannedCurrent conservation giving Endowment

investments projects investments investments Total

972$ 83,752$ 4,811$ 72,915$ 162,450$- 184,430 70,279 29,899 284,608

26 223,186 124,532 481,693 829,437- - 12,584 - 12,584

Hedge funds - 44,188 - 164,635 208,823Private equity investments 863 386 - 141,737 142,986

- - 36,074 - 36,074- 1,262 (1,709) 447 -

1,861$ 537,204$ 246,571$ 891,326$ 1,676,962$

2010

Receivables from trustsInterfund loansTotal investments

Short term investmentsFixed income - bondsEquitiesReal estate trusts

(In thousands)Investments

held for PlannedCurrent conservation giving Endowment

investments projects investments investments Total

7,260$ 160,343$ 14,108$ 3,820$ 185,531$- 58,925 65,841 38,877 163,643

304 172,189 116,909 473,525 762,927- - 9,944 - 9,944

Hedge funds - 66,522 - 198,277 264,799Private equity investments 1,014 199 - 120,703 121,916

- - 34,221 - 34,221- 8,099 (10,199) 2,100 -

8,578$ 466,277$ 230,824$ 837,302$ 1,542,981$

2009

Receivables from trustsInterfund loansTotal investments

Short term investmentsFixed income - bondsEquitiesReal estate trusts

See Note 2 for a description of the classification of The Conservancy’s investments.

Planned giving investments include charitable gift annuities, which must meet certain reserve levelrequirements. Due to the volatility in the financial markets, those reserves were required to beincreased with other sources of funds. The amount of additional funds invested in the short termplanned giving investments were $1,710,000 and $10,200,000 as of June 30, 2010 and 2009,respectively.


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Planned giving investments include recognition of contribution revenue which is classified astemporarily restricted contributions to endowments and similar funds. The amount of plannedgiving contribution revenue recognized was $8,355,000 and $5,399,000 for the years ended June 30,2010 and 2009, respectively.

Certain investment managers of The Conservancy use derivatives and currency hedging in order tomanage risks and exposures related to interest rates, security positions, and foreign currency.

Investment returns consisted of the following for the years ended June 30, 2010 and 2009:

2010 2009

19,989$ 18,479$

36,513 (78,102)113,437 (261,036)169,939$ (320,659)$

Unrealized gains (losses)Investment returns

(In thousands)

Dividends and interest incomeRealized gains (losses) (net of expenses

of $6,639 and $7,202, respectively)

7. Restricted net assets

Temporarily restricted net assets are available for the following purposes:

2010 2009

187,924$ 189,748$147,768 135,47196,662 75,977

72,175 56,949504,529$ 458,145$Total

(In thousands)

Land acquisition and other conservation projectsTime restricted for periods after June 30Time and purpose restricted for periods after June 30True endowment gains subject to future Board of

Directors appropriation

Permanently restricted net assets are restricted in perpetuity; the income derived from theseinvestments is expendable to support the operations of The Conservancy.

Effective July 1, 2008, The Conservancy adopted the FASB’s guidance regarding Endowments ofNot-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version ofthe Uniform Prudent Management of Institutional Funds Act (UPMIFA), and Enhanced Disclosuresfor all Endowment Funds. UPMIFA, as enacted by the Council of the District of Columbia, underwhich laws The Conservancy is incorporated, and as interpreted by The Conservancy, requires thepreservation of the fair value of the original gift as of the gift date of donor-restricted endowmentfunds absent explicit donor stipulations to the contrary. In addition, net appreciation on donor-restricted endowment funds is required to be classified and reported as temporarily restricted netassets.


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The Conservancy’s Endowment (Endowment) provides stable financial support to a wide variety ofprograms and activities in perpetuity, playing a critical role in enabling The Conservancy to achieveits mission. Programs supported by the Endowment include restoring, monitoring, and managingnatural areas owned by The Conservancy and others, as well as many other activities and actionsvital to the preservation of natural diversity. The Endowment includes both donor-restrictedendowment funds and funds designated by the Board of Directors (Board) to function asendowments. Net assets associated with endowment funds, including Board-designated endowmentfunds, are classified and reported based on the existence or absence of donor-imposed restrictions.

The Conservancy classifies as permanently restricted net assets (a) the original value of giftsdonated to the permanent endowment, and (b) accumulations to the permanent endowment made inaccordance with the direction of the applicable donor gift instrument at the time the accumulation isadded to the fund. The remaining portion of the donor-restricted endowment fund that is notclassified in permanently restricted net assets is classified as temporarily restricted net assets untilthose amounts are appropriated for expenditure by The Conservancy in a manner consistent with thestandard of prudence prescribed by UPMIFA.

In accordance with UPMIFA, The Conservancy considers the following factors in making adetermination to appropriate or accumulate donor-restricted endowment funds:

The duration and preservation of the endowment fund; The purposes of the institution and the endowment fund; General economic conditions; The possible effect of inflation or deflation; The expected total return from income and appreciation of investments; Other resources of the institution; and The investment policy of the institution.

Endowment funds are categorized in the following net asset classes as of June 30, 2010 and 2009:

(In thousands)Temporarily Permanently

Unrestricted Restricted Restricted Total

(7,096)$ 72,175$ 132,667$ 197,746$690,828 - - 690,828683,732$ 72,175$ 132,667$ 888,574$



(9,879)$ 56,949$ 126,008$ 173,078$660,998 - - 660,998651,119$ 56,949$ 126,008$ 834,076$

Board-designated endowment fundsTotal endowment funds

2010

Donor-restricted endowment fundsBoard-designated endowment fundsTotal endowment funds

2009

Donor-restricted endowment funds


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Changes in endowment funds by net asset classification for the years ended June 30, 2010 and 2009are summarized as follows:



651,119$ 56,949$ 126,008$ 834,076$93,654 24,133 - 117,787

Contributions 95 313 6,659 7,067Interfund transfers 5,534 1,213 - 6,747Other revenue 234 - - 234Appropriation of assets for expenditure (77,337) - - (77,337)Net assets released from restrictions 10,433 (10,433) - -

683,732$ 72,175$ 132,667$ 888,574$



866,045$ 96,635$ 111,130$ 1,073,810$(161,040) (36,934) - (197,974)

Contributions 803 430 11,213 12,446Interfund transfers 2,851 1,312 - 4,163Other revenue 204 - - 204Appropriation of assets for expenditure (58,573) - - (58,573)Net assets released from restrictions 4,494 (4,494) - -Other reclassifications (3,665) - 3,665 -

651,119$ 56,949$ 126,008$ 834,076$

2010

Endowment net assets, beginning of yearInvestment returns

Total endowment funds

Total endowment funds

2009

Endowment net assets, beginning of yearInvestment returns

The total amount of permanently restricted net assets on the consolidated statements of financialposition includes the donor-restricted endowment funds displayed in the above tables, as well asamounts contributed to create a permanent capital fund. This fund, the land preservation fund, isused to finance capital projects, and is to be maintained in perpetuity for only this purpose.Permanently restricted net assets in the land preservation fund were $155,614,000 and $155,355,000as of June 30, 2010 and 2009, respectively.

Endowments with Eroded Corpus

From time to time, the fair value of assets associated with individual donor-restricted endowmentfunds may fall below the level that the donor or UPMIFA requires The Conservancy to retain as afund of perpetual duration. In accordance with the FASB guidance, deficiencies of this nature thatare reported in unrestricted net assets were $7,096,000 and $9,879,000 as of June 30, 2010 and2009, respectively. These deficits resulted from unfavorable market fluctuations that occurredshortly after the investment of newly established endowments and authorized appropriation that wasdeemed prudent.


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Endowment Investment and Spending Policies

The amount of endowment funds provided each year for operations is established by the FinanceCommittee of the Board, through its adoption of an annual endowment spending rate and spendingrate base. The spending rate for the year ended June 30, 2010 was 5.5% of the average fair marketvalue over the 36 months of calendar years 2008, 2007 and 2006.

In order to maintain the purchasing power of the Endowment, The Conservancy must earn anominal rate of return that compensates for both the endowment payout as well as the rate ofinflation. With the current endowment payout of 5.5% and long-term inflation projected at 2.5%,The Conservancy needs to earn approximately 8% to maintain the purchasing power of theendowment. The Conservancy also seeks to grow endowment principal beyond inflation, andtherefore strives to produce a premium above 8% over the long term, as discussed below.

The Conservancy has determined asset allocation targets and ranges across a variety of asset classeswhich The Conservancy feels acceptable for inclusion in its portfolio. The Conservancy has chosennot to manage its underlying assets directly, but to utilize independent investment managers. Tomaintain prudent diversification and to avoid undue risk, the Conservancy’s portfolio is dividedamong 40 to 50 separate managers.

The Conservancy recognizes the difficulty of achieving its potential investment objectives in lightof the uncertainties and complexities of contemporary investment markets. The Conservancy alsorecognizes that significant risk must be assumed to achieve long-term investment objectives. Inestablishing its investment objectives in light of its risk tolerances, The Conservancy has consideredits ability to withstand short and intermediate term variability and concluded that the portfolio cantolerate some interim fluctuations in market values and rates of return in order to achieve itsobjectives. However, The Conservancy realizes that market performance varies and that theportfolio’s investment objectives may not be achievable during short-term periods.


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8. Property and equipment

Property and equipment consisted of the following at June 30, 2010 and 2009:

2010 2009

6,580$ 6,670$105,523 99,32316,130 14,7261,156 2,521

12,528 10,346141,917 133,586(40,806) (37,616)

Total 101,111$ 95,970$

(In thousands)

Less - Accumulated depreciation and amortization

LandBuildings and improvementsConstruction in progressComputer equipment and softwareFurniture, fixtures, and other

Depreciation and amortization expense was $5,656,000 and $5,177,000 during the years ended June30, 2010 and 2009, respectively. Of the total assets listed above, $8,356,000 and $5,493,000 werefully depreciated at June 30, 2010 and 2009, respectively.



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9. Long-term debt and derivatives

Long-term debt consisted of the following at June 30, 2010 and 2009:

(In thousands) 2010 2009

Unsecured borrowings due at various dates through 2012. Interest is payable atvarious rates based on LIBOR plus 0.50%, depending on repayment terms; 0.85% and0.82% at June 30, 2010 and 2009, respectively. 237$ 8,387$

Unsecured Colorado Educational and Cultural Facilities Authority TaxExempt RevenueBonds, Series 2002A issued in the original principal amount of $25,053,000 to refund theIndustrial Development Authority of Arlington County (IDA) TaxExempt Revenue BondsSeries 1997A and portions of the IDA Revenue Bonds Taxable Series 1997B; fixedinterest rate pursuant to rate swap, 3.56% as of June 30, 2010 and 2009, due July, 2027. 22,071 22,910

Unsecured Extendable Floating Rate Notes, Taxable Revenue Bonds Series EXL5 issuedin the original principal amount of $100,000,000, with a variable interest rate resetquarterly, originally due October 5, 2009. See interest rate note below. - 100,000

Unsecured Taxable Revenue Bonds Series 2009 in the aggregate principal amount of 100,000 -$100,000,000 issued July 1, 2009 to refund the Extended Floating Rate Notes, TaxableRevenue Bonds Series EXL5 on October 5, 2009; fixed rate of 6.30% due July, 2019.

Unsecured Colorado Educational and Cultural Facilities Authority Taxable RevenueBonds, Series 2008A issued in the original principal amount of $90,000,000, with avariable interest rate reset weekly, due July, 2033. See interest rate note below. 88,180 90,000

Unsecured Colorado Educational and Cultural Facilities Authority TaxExempt RevenueBonds, Series 2003A-TE2008 issued in the original principal amount of $102,400,000,with a variable interest rate reset weekly, due July, 2033. See interest rate note below. 98,500 100,500

New York State Environmental Facilities Corporation private bonds issued in theaggregate amount of $50,000,000 with a fixed interest rate of 3.90%, due June, 2024. 50,000 -

Loans and mortgages on land, some of which are collateralized by the land and by a$202,000 restricted cash account, and payable in monthly installments, including interestranging from 0% to 8.5%; final payments are due at various dates through 2022. 85,835 137,656

Other notes payable without interest due on demand 5,625 5,375450,448 464,828

Less - current maturities (104,156) (248,000)Total Long-term Debt 346,292$ 216,828$


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In order to partially insulate itself from the variable nature of the interest rates on much of itsoutstanding debt, The Conservancy has two interest rate swap agreements. The Conservancy pays afixed rate of 4.373% on $95,375,000 in return for receipt of variable rate interest in the amount ofLIBOR; and 2.962% on $190,000,000 of principal in return for receipt of variable rate interest in theamount of 67% of LIBOR. The counterparty to these swaps has the option to terminate these swapsbeginning on July 1, 2010 and thereafter.

The following schedule of amounts due is based on the maturity dates per the debt agreements:

(in thousands)

104,156$112,31071,2583,7336,123

152,868450,448$

Year ended June 30

2015Thereafter

201220132014

2011

The fair value of long-term debt, including current maturities, is estimated based on current marketrates offered to or by The Conservancy for similar instruments. Based on a blended borrowing rateusing current market rates as of June 30, 2010 the fair value of long-term debt is approximately$449,585,000.

Due to the nature of certain variable rate bond agreements, The Conservancy may receive notice ofan optional tender on its variable-rate bonds, in which case The Conservancy would have anobligation to purchase the bonds tendered if unable to secure alternate financing at that time. TheConservancy entered into standby purchase agreements with a financial institution to support theoriginal principal amount of $192,400,000 of the variable rate demand obligations. Under theseagreements, the financial institution agreed to purchase the bonds if The Conservancy cannotremarket the bonds at which time the due dates would become accelerated to a three year period.As a result, The Conservancy has classified an additional $58,222,000 as current maturities of long-term debt on the consolidated statements of financial position to reflect the potential acceleratedpayment schedule.

Interest expense incurred on total debt for 2010 and 2009 was $22,499,000 and $16,467,000,respectively.

The Conservancy has an unsecured line of credit providing total borrowings as of June 30, 2010 and2009 of up to $30,000,000 and $50,000,000, respectively. As of June 30, 2010 and 2009 thebalance on the line of credit was $0 and $8,000,000, respectively. Interest is payable at variousrates based on LIBOR plus 0.50%, depending on repayment terms, as of June 30, 2010 and 2009.

Effective July 1, 2009, The Conservancy adopted the Financial Accounting Standards Board’s(FASB) guidance regarding Disclosures about Derivative Instruments and Hedging Activities,which was an amendment to enhance the disclosure framework in the FASB’s guidance regardingAccounting for Derivative Instruments and Hedging Activities. The guidance addresses constituent


28

concerns about the impact derivative instruments can have on an entity’s financial position, resultsof operations, and cash flows.

Fair Value of derivatives consisted of the following at June 30, 2010 and 2009:

2010 2009

Interest rate contracts - swap agreementsStatement of Financial Position Location:

41,916$ 32,564$

(9,352)$ (17,513)$

(In thousands)

Accrued liabilities - long-term

Investment returns

Derivatives not designated as hedging instruments:

Statement of Activities Location:

10. Contributed goods and services

The Conservancy periodically receives contributed professional services from third parties andrecognizes revenue at the fair value of those services. During 2010 and 2009, these services totaled$7,887,000 and $8,042,000, respectively. In addition, The Conservancy received contributed goodsthat totaled $3,871,000 and $4,496,000 for the years ended June 30, 2010 and 2009, respectively.Contributed goods are recorded at fair value on the date of donation. Contributed goods andservices with a fair value of $50,000 or more are capitalized in accordance with The Conservancy’scapitalization policy. Of the $7,887,000 and $8,042,000 in contributed services, $57,000 and$74,000 was capitalized for the years ended June 30, 2010 and 2009, respectively. Of the$3,871,000 and $4,496,000 in contributed goods, $107,000 and $0 was capitalized for the yearsended June 30, 2010 and 2009, respectively.

11. Commitments and contingencies

The Conservancy is a party to various litigations arising out of the normal conduct of its operations.In the opinion of The Conservancy’s management, the ultimate resolution of these matters will notmaterially affect the financial position, changes in net assets, or cash flows of The Conservancy.

LeasesThe Conservancy has entered into noncancelable operating leases for office space, which expire atvarious dates through 2019. Certain of these leases contain rent escalation clauses based on theconsumer price index.


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The following is a schedule of future minimum lease payments for all operating leases:

(in thousands)

3,898$3,3772,9672,4691,9222,995

Total minimum lease payments 17,628$

Year ended June 30

2015Thereafter

201220132014

2011

Rent expense was $11,086,000 and $10,719,000 for the years ended June 30, 2010 and 2009,respectively.

Land acquisitions and other commitmentsThe Conservancy has entered into contracts for the purchase of land and other purchasecommitments that had not closed as of June 30, 2010, in the amount of $181,651,000.

The Conservancy has remaining funding commitments to private equity and hedge fund investmentsof $92,980,000 at June 30, 2010.

The Conservancy is a party to an agreement whereby under certain circumstances, the Conservancymay be required to establish a special purpose entity and accept a loan from the other party to theagreement. The Conservancy would, in turn, secure the loan with a qualified existing asset, andguarantee repayment of the loan should the special purpose entity fail to perform under the terms ofthe loan. The Conservancy believes the likelihood of any significant loss related to this guarantee tobe remote.

12. Retirement plans

The Conservancy’s employees are eligible after one month of service to participate in The NatureConservancy Savings and Retirement Plan (the Plan), in which employees can make voluntary, tax-deferred contributions within specified limits. The Plan was established under the provisions ofInternal Revenue Code Section 401(k) and has received a favorable determination as to its tax statusfrom the Internal Revenue Service. As of August 2005, certain employees are also eligible toparticipate in a non-qualified deferred compensation plan created pursuant to Internal RevenueCode Section 457(b). The Conservancy’s contributions to the plans were $10,855,000 and$11,574,000 for the years ended June 30, 2010 and 2009, respectively.

13. Program expense allocation

Operating expenses are allocated to program and support categories based on separate cost centertypes as defined below. Conservation land and easements that are acquired by The Conservancy, butnot sold or donated, are reflected as an increase in conservation land and easements on theconsolidated statements of financial position and are excluded from the program expense categorieson the consolidated statements of activities.


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The Conservancy accounts for its program expenditures in the following categories:

Conservation Activities and Actions – Expenditures related to the broad spectrum ofactivities and actions critical to advancing The Conservancy’s ecoregion-based approach toconservation. Expenditures related to understanding, monitoring, maintaining, restoring, andmanaging natural areas owned by The Conservancy and others are included, as areexpenditures for developing and enhancing The Conservancy’s ability to gather and shareecological information and to assess and evaluate threats to the elements of natural diversitywithin ecoregions in which The Conservancy works. In addition, this area includesexpenditures to mitigate, prevent, or slow the effects of threats to the elements of biodiversity,including investments in the institutional development of domestic and internationalconservation organizations. Expenditures related to improving public land management andsupporting the development of sound global policies, including participating in conferencesand events that help establish a common vision for conservation worldwide. Finally, thiscategory includes expenditures relating to community outreach and education of keystakeholders and land users in areas where Conservancy conservation programs reside.

General and Administration – Expenditures related to building and maintaining an efficientbusiness infrastructure, including those related to corporate governance, to support andadvance the programmatic conservation objectives of The Conservancy.

General Fund-Raising – Expenditures related to fund-raising strategies that provide therevenue stream for both operations and capital needs to further the accomplishment of TheConservancy’s mission and objectives.

Membership Development – Expenditures related to the acquisition and retention of TheConservancy members, primarily through the use of a direct-mail program.

14. Income taxes

The Conservancy has been granted an exemption from Federal income taxes under Section501(c)(3) of the Internal Revenue Code. The Internal Revenue Service has classified TheConservancy as other than a private foundation. The Conservancy pays a nominal amount of taxrelating to several unrelated business income activities, primarily rental income from debt-financedproperty.

Effective January 1, 2007, The Conservancy adopted the FASB’s guidance related to Accountingfor Income Taxes and Accounting for Uncertainty in Income Taxes. The adoption continues tohave no effect on the consolidated financial statements.

15. Subsequent events

All subsequent events were evaluated through December 6, 2010.

The Nature ConservancySchedules of Functional ExpensesFor the year ended June 30, 2010 with summarized totals for the year ended June 30, 2009

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Program expenses

Conservation Supportactivities and General and General Membership services 2010 Total 2009 Total

actions administration fund-raising development expenses expenses expenses

157,304$ 61,199$ 43,036$ 1,737$ 105,972$ 263,276$ 281,385$49,105 7,019 3,013 3,347 13,379 62,484 73,19349,901 490 14 - 504 50,405 63,6236,902 2,766 668 1,452 4,886 11,788 14,1572,635 2,096 446 12 2,554 5,189 5,9021,410 367 505 6,521 7,393 8,803 9,6771,931 8,968 187 - 9,155 11,086 10,7194,047 1,113 212 - 1,325 5,372 6,1823,302 189 810 4,393 5,392 8,694 9,751

11,148 1,847 1,842 34 3,723 14,871 17,8864,625 779 989 6 1,774 6,399 8,963

22,608 24 - - 24 22,632 16,4985,345 305 6 - 311 5,656 5,1772,759 262 32 - 294 3,053 2,9581,007 430 63 7 500 1,507 1,7456,446 1,740 186 - 1,926 8,372 12,3151,966 1,366 56 - 1,422 3,388 3,4014,776 692 22 - 714 5,490 6,164

Closing costs 1,617 432 - - 432 2,049 1,922Contributed goods and services non-cash expense 4,780 5,103 1,711 - 6,814 11,594 12,464

5,487 1,496 82 4 1,582 7,069 2,554349,101 98,683 53,880 17,513 170,076 519,177 566,636

200,476 - - - - 200,476 257,785549,577$ 98,683$ 53,880$ 17,513$ 170,076$ 719,653$ 824,421$

(Amounts in thousands) Support services expenses

Total

Fund-raising

SubtotalBook value of conservation land and easements sold ordonated to government and others

Equipment

Conferences and meetings

TelecommunicationsPostage and mailing service

Totals

Insurance

All other

Taxes and licensesUtilities, repairs, maintenance, and construction

Real estate taxes

InterestDepreciation and amortization

Printing and publicationTravel

OccupancyEquipment rental and maintenance

PersonnelContract, professional feesGrants and allocationsSupplies

Documents

The Nature Conservancy - University of Idaho...The Nature Conservancy Consolidated Statements of Financial Position As of June 30, 2010 and 2009 The accompanying notes are an integral